In its basic form, tawarruq allows the sale of an asset on a deferred payment basis. The purchaser then sells the asset to a third party to get cash. But so-called organised tawarruq has divided scholars who debate whether allowing such transactions via banks still meet syariah laws.

In a paper, Shochrul Romatul Ajija, an Indonesian student taking her Master of Economics at the International Islamic University Malaysia, said tawarruq is gaining popularity in Malaysia and has been established as syariah-compliant. “It helps people who need cash on short notice … it is not a loan,” she said.

She said should Brunei wish to start providing tawarruq financing, it can be done to help people who are in need of cash in the short term.

But in her paper, Shochrul said that if Islamic financial institutions need an alternate solution to prevailing liquidity management challenges, they can turn to sukuk ijarah, or Islamic bonds.

Sri Anne Masri, a local Islamic business consultant, said, “The Islamic banking industry must seriously differentiate itself from the conventional banks, not just by replicating conventional products.” She added that tawarruq is being used today as either a liquidity facility (inter bank placement) or a credit facility (credit financing) as it is a highly profitable business.

The First Global Investments, an Islamic investments firm, defines tawarruq as, reverse murabahah. “As used in personal financing, a customer with a genuine need buys something on credit from the bank on a deferred payment basis and then immediately resells it for cash to a third party. In this way, the customer can obtain cash without taking an interest-based loan,” it said.

Shochrul said that the use of tawarruq came under scrutiny because people were finding it difficult to find other brokers to sell their tawarruq to, and that was when the banks started to arrange buyers and sellers in order to make the sale, which is prohibited in the syariah context. “This is what is called organised tawarruq and it is not syariah-compliant,” she said.

In her paper, she said that should Islamic financial institutions decide to use tawarruq, they should note that it should “only be used in extreme cases where no option is available, to avoid interest”.

She said that widespread use of tawarruq is harmful to the industry in the long run, stressing syariah boards have to “strictly monitor all tawarruq-based transactions”.

The Organisation of Islamic Conference Fiqh Academy, an Islamic studies academy in Jeddah, Saudi Arabia, in April 2009, ruled that organised tawarruq was “impermissible” due to the arranged nature between the Islamic financial institutions and the people.